Best balanced advantage funds to invest in 2021

Balanced Advantage Funds or Dynamic Asset Allocation funds are a newly formed category of hybrid mutual funds, which are free to manage their exposure to equity and debt according to market conditions. This category of funds has offered 16.74% returns in the last one year. Many fund managers and advisors are recommending these schemes to new equity mutual fund investors. We have handpicked the best schemes from this category for you to invest in 2021. These schemes are market cap agnostic and hence are suitable for those investors who don’t want to take the risk of investing in pure equities. These funds change their exposure to equity and debt instruments as per the changing equity valuations and market movements. Many fund houses have different ratios and models to decide the allocation in these schemes. The fund managers of these schemes use debt as a cushion to tackle equity volatility and provide higher returns and benefit from equity tax treatment. There are 26 schemes currently available in the market. Different schemes manage their portfolios based on different models based on valuations, PE ratios and various other factors. The aim of these schemes is to generate returns closer to equity funds with lesser volatility. If you are a new investor or are not comfortable being totally invested in equity, BAFs can be a good option for you. However, investors should also remember that equity volatility is involved in these schemes and these do not provide debt level of safety or capital preservation. If you think you are okay with the kind of volatility these funds have, here is the list of our recommended funds that you can choose from: Edelweiss Balanced Advantage FundICICI Prudential Balanced Advantage FundAditya Birla Sun Life Balanced Advantage FundIf you want to invest in these schemes, you may be interested to know how we chose these schemes. Take a look at our methodology:ETMutualFunds.com has employed the following parameters for shortlisting the hybrid mutual fund schemes.1. Mean rolling returns: Rolled daily for the last three years.2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.i) When H = 0.5, the series of return is said to be a geometric Brownian time series. These type of time series is difficult to forecast.ii) When H is less than 0.5, the series is said to be mean reverting.iii) When H is greater than 0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.X = Returns below zeroY = Sum of all squares of XZ = Y/number of days taken for computing the ratioDownside risk = Square root of Z4. Outperformancei) Equity portion: It is measured by Jensen's Alpha for the last three years. Jensen's Alpha shows the risk-adjusted return generated by a mutual fund scheme relative to the expected market return predicted by the Capital Asset Pricing Model (CAPM). Higher Alpha indicates that the portfolio performance has outstripped the returns predicted by the market.Average returns generated by the MF Scheme =[Risk Free Rate + Beta of the MF Scheme * {(Average return of the index - Risk Free Rate}ii) Debt portion: Fund Return – Benchmark return. Rolling returns rolled daily is used for computing the return of the fund and the benchmark and subsequently the Active return of the fund.5. Asset size: For Hybrid funds, the threshold asset size is Rs 50 crore(Disclaimer: past performance is no guarantee for future performance.)

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